Dealers Seek Laws to Thwart Lawsuits

By Donna Harris
Automotive News June 07, 2004

Three years ago, a lawyer noticed a car ad in a Monrovia, Calif., newspaper.

He noticed that Sierra Auto Car’s disclaimer – “on credit approval” – was too small in relation to its “Zero Percent Interest” headline.

Big mistake. Customers had not complained about it, but that didn’t matter. The lawyer sued, and Sierra Auto President Peter Hoffman paid him $7,500 to drop the complaint.

‘Legal extortion’

“The suit was insulting,” Hoffman says. “It’s like legal extortion.”

Hoffman is not unique. He is one of dozens of California dealers who have been hit by lawsuits that challenged their advertising practices. Elsewhere in the country, dealers are organizing to fight a growing amount of consumer litigation.

In New Jersey, dealers want to promote mediation as an alternative to litigation when consumer disputes arise. In New York, Connecticut and Rhode Island, dealers and lenders are seeking legal limits on lessor liability.

In Illinois, dealers might support a ballot initiative to narrow the grounds for consumer lawsuits. If adopted, that initiative would be patterned after a similar ballot campaign in California.

California dealers have raised $4 million to promote their November ballot initiative. It would allow individuals to file lawsuits only if they can prove damages. Trial lawyers now can sue businesses in the state without producing injured parties or proof of damages.

If voters approve the proposal, only the state attorney general or local public officials – not plaintiffs’ lawyers – could sue to enforce laws against unfair business competition.

Rosemary Shahan, president of Consumers for Auto Reliability and Safety of Sacramento, Calif., says she opposes the ballot initiative because “it goes too far.”

She adds: “It addresses problems that arose a couple of years ago and ended with the offending attorneys being publicly pilloried and hounded out of the legal profession. We’d rather see dealers working to comply with the law than trying to gut it via the initiative process.”

The Illinois Automobile Dealers Association is considering a ballot initiative similar to the California proposal. Last year the Illinois Supreme Court struck down a state law that limited fraud suits against dealers. It ruled the law gave dealers an arbitrary advantage over other businesses.

Faulty paperwork

In New Jersey, dealers want to promote mediation with consumers to neutralize a wave of lawsuits.

The dealers took action after a group of plaintiffs’ lawyers launched a class-action lawsuit against nearly every dealer in New Jersey. The lawsuit alleges that dealers overcharged customers for fees to register vehicles and handle paperwork. The overcharges on registration fees averaged about $5, according to the New Jersey Coalition of Automotive Retailers.

A state court dismissed a suit involving documentation fees against Tom Hessert Jr., president of Cherry Hill Classic Cars in Cherry Hill, N.J. In another case, Hessert says he repaid 4,500 customers that he overcharged for registration fees in amounts ranging from $1.50 to $25.

He says he undercharged about as many customers as he overcharged for such fees, and never intended to profit from them.

The New Jersey dealers’ association recently negotiated a plan that allows dealers to mediate individual settlements of the class-action suit. According to the association, dealers who agree to mediation pay $500 in legal costs and repay customers who were overcharged.

These measures come too late to protect Hessert, who paid a six-figure sum to settle the suit. Two-thirds of that settlement were for lawyers’ fees, he says.

Hessert says he now requires all customers to agree to mandatory arbitration to settle disputes with his dealership.

Says Hessert: “I’m afraid to come to work in the morning.”